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Justices Punt on Joint Employer Question for ABC Test (1)

Feb. 28, 2020, 4:02 PM; Updated: Feb. 28, 2020, 6:01 PM

The California Supreme Court rejected requests to consider whether its “ABC test,” which makes it harder to classify workers as independent contractors, should apply to franchise and joint employer relationships. The court said it would only weigh whether the worker classification test applies retroactively.

The justices are reviewing a case that will determine whether the test should be used to analyze misclassification lawsuits brought prior to the state high court’s 2018 ruling in Dynamex Operations West v. Superior Court. That decision created the rigid, three-part test that presumes workers are employees unless employers can show they meet the test’s three factors. That new legal standard threatens business models in the state that depend on contractors, including gig companies such as Uber Technologies Inc., GrubHub, and Lyft Inc.

The California justices are considering whether to apply the new test to a decade-old case involving a cleaning franchise company and janitors who say they should have been classified as employees entitled to minimum wages and overtime.

Attorneys in the case asked the court to also clarify whether the ABC test can be used to determine if two or more businesses are “joint employers” that should share liability for labor and employment violations, and whether it applies to franchiser and franchisee relationships. But the court on Thursday said it wouldn’t consider those broader questions beyond the retroactivity issue.

The ABC test replaced a previous, more flexible worker classification test, and lays out three specific criteria employers must meet to classify its workers as contractors: Companies must show the workers have freedom from control over how to perform the services provided; that the services are outside the businesses’ normal variety or work; and that the workers are engaged in an independently established role.

California lawmakers codified Dynamex into law with Assembly Bill 5, which took effect this year, but didn’t offer clarification on many of the questions raised in the wake of the new worker classification test. The business community wants clarity on these issues, as well. Major business and franchise groups have warned there would be a negative impact if the court were to apply the test broadly, and businesses in the state would be harmed.

Workers advocates and plaintiffs’ attorneys say that broad application of the test would keep corporations from exploiting workers by labeling them as contractors who aren’t entitled to the same benefits as employees.

Shannon Liss-Riordan, who represents the janitors, said she hoped that the high court could take up these questions “to put them to rest once and for all—to the extent there is confusion based upon other cases.” The decision means that a ruling in the case from the U.S. Court of Appeals for the Ninth Circuit will remain intact.

She said A.B. 5 renders the retroactivity question moot because it expressly states that it’s a codification of existing law and is thus retroactive.

“Also, now that Dynamex is close to two years old, the retroactivity question is becoming an academic point. Employers have had nearly two years now to ensure their compliance with the ABC test in California,” said Liss-Riordan, partner at Boston-based Lichten & Liss-Riordan. “Those that are waiting to see if is undone should stop waiting—and start complying. The California courts, legislature, and governor have spoken. Misclassification is not something to be tolerated any longer in California.”

The case is Vazquez v. Jan-Pro Franchising Int’l, Inc., Cal., No. S258191, order 2/27/20.

(Updated with attorney comments in eighth paragraph.)

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Terence Hyland at thyland@bloomberglaw.com

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